'Time is running out' for Intel CEO Patrick Gelsinger: Analyst

Intel shares jumped on Friday following a Bloomberg report that the company is exploring various options to help improve its business, including a potential breakup.

KeyBanc Capital Markets equity research analyst John Vinh says investors have concerns about whether or not Intel can succeed as a service foundry, so spinning that business off would be "a step in the right direction" and likely be looked upon favorably.

When it comes to CEO Pat Gelsinger, Vinh thinks he has done a "good job" managing the company, but that "results have been disappointing, for a multitude of reasons. I don't know how much of that you can attribute to Pat." "Time is running out" for Gelsinger, Vinh says, with investors growing concerned that Gelsinger may not be the right leader for the company.

Watch the video above to hear why Vinh says Intel is lagging rivals when it comes to AI.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Stephanie Mikulich.

Video transcript

We're watching shares of Intel shares spiking after a tough month reports saying the struggling chip giant is exploring options including a split of the company and scrapping factory projects.

Joining us now is John Vin key bank capital markets, equity research analyst, John.

It is good to see you.

So uh let's start with these reports.

Uh uh John that uh uh Intel could be considering uh splitting its product design and manufacturing businesses.

I'm curious what you made of those reports, John, what would be the the potential benefits of that John for the company just financially and strategically?

Yeah, I think, you know, I think the benefit would be, I think the concerns a lot of investors have on Intel is that if you look at the two parts of its business, right?

It's kind of chip core chip business, the ID M business.

And then you look at the Foundry business.

I I think each and of those, each of those projects in and of itself are just a big, big task to handle.

And I think people are really concerned about whether or not Intel can really succeed as a service founder.

So I think divesting the ifs business off as the reports indicate would be a step in the right direction.

And I think, uh, it would be something that I think a lot of investors would look at, uh, favorably so fair to say.

It sounds like you think it should happen.

But what percentage chance would you put on the likelihood of it actually happening?

You know, it's unclear, right.

You know, obviously there's, you know, right now it's all speculation, right?

I mean, I I think it's something that outside investors want them to do um internally if you're intel, I I think part of Intel feels that a lot of its prior success has been because it's been vertically integrated, both on the foundry side as well as on just the core chip business.

And I know Pat feels very strongly about the importance of kind of the foundry business as it relates to kind of national security.

So I think they're so they're obviously struggling with it.

So, you know, I hard to say what what the probability is.

I think, I think investors want to see it happen.

Um but I think internally if you're intel, you're probably struggling with that decision.

You know, John, you mentioned Pat Gelsinger there um took the reins this company a few years back officially February 2021.

I'm curious, John, you know, the company, you know, the C suite, how would you grade gelsinger's performance so far?

You know, I think Pat's done a good job managing Intel.

Right.

I mean, there's probably very few executives in this world that are capable of running a company as large and complicated as is Intel.

And, you know, Pat certainly is on the short list.

But I think if you want to be fair, um, you know, the results have been disappointing, you know, for a multitude of reasons, I don't know how much of that you can attribute to Pat.

Um but, but the results that, that, you know, have uh that people had hoped for when he took over the reins just have not realized themselves.

So, so given that it's been disappointing John, I, I'm curious how much time you, you think he has left to really make this turnaround plan, this turnaround strategy of his work.

Yeah, I I certainly think that, you know, time is running out, right.

And I think at this point in time, I think more and more investors are concerned about whether that's the right guy.

Obviously, you know, they've got to make some, some decisions here, obviously divesting ifs seems to be one of the considerations out there.

Um but I think people are going to wait and see what's, what's their next move.

And then based on that, we'll we'll have to evaluate.

Well, John, I, I wanna broaden the conversation out slightly because I find it interesting that in terms of questions that I was asking, but also the responses we were getting from guests this week after the reaction from the street to NVIDIA earnings, nobody was bringing up Intel.

It's literally just not a word that even came up in any of our conversations across our programming here.

And that's because they don't really have a seat at the head of the table when it comes to the Chips race right now.

That feels like an issue.

Is it something that they can change?

Is that something that you see the company being able to pivot on moving forward here?

I think it's gonna be really challenging, right?

Um I'm not saying that they don't have a chance, but if you look at their core business, um you know what's, what are the issues there?

Right?

They don't have a competitive A I chip that can compete with um like in videos of the world, they don't have a chip that can compete with the Hyper Scalars.

Google's GP U right now, right?

You know, obviously they're rolling out uh gotta be three, they're working on kind of a next generation chip.

But from what we're hearing, uh that chip is largely noncompetitive and then you look at their core compute businesses, they're, they're under fire because they're losing share to not only A MD on the server front, but they're also losing share to arm, you know, on the server side.

Uh more and more hyper Scalars are developing arm based CPU chips.

Google's working on one called AXIOM.

Uh Aws has seen very good success with its arm based Graviton CPU.

Uh And that trend is only going to continue going forward and then on the PC front, uh more recently, you've seen Qualcomm launch an arm based CPU.

Um And they're also starting to see good traction with, with that chip in the PC market.

So they're under attack under multiple fronts.

Um I think in the near term, probably the thing that they really have to address most urgently urgently is just having a more competitive A I offering because that's obviously seeing very strong demand in the marketplace right now.

You know John, I heard you mention the hyper scalar there.

I'm curious to get your your take on one issue.

Um you know, hyper scale obviously been, you know, spending spending on on A I.

That's been great news for NVIDIA.

We saw those reports.

Uh thi this week, you know Nvidia's reporting guy was solid, maybe obviously it was investors expecting more.

Um I'm curious John though, you know, to the extent that you think investors in those hyper scalar, do they start putting some pressure on those companies?

Saying, listen, you gotta show me ro I on all this A I investment or you gotta cool it down and what that would mean for some of the names you cover like NVIDIA.

Yeah, I think that's absolutely a concern when you think about kind of the A I semiconductor plays right, that we know that this spending cannot continue unabated without some ro I there.

You know, it's, it's unclear when that's gonna happen.

We don't think that that happens before 2026 at this point.

And the reason is if you look at the Blackwell um chip that NVIDIA is offering um the, the improvement in performance that they are providing, especially with the whole rack server solution, GB 200 NVL, you're getting a A 30 X improvement in performance there and that's a massive step up in performance.

And if you're a customer of theirs and you're under a lot of pressure such as a Microsoft Aws Google to show RO I um you can't not move to Blackwall because the RO I of the performance improvement that chip is so massive.

And until we figure out what the monetization model is for, for generative A I, they're gonna all have to move to blackwall pretty aggressively in 2025.